Decades of life yet are left in the UK North Sea, but it's still all about reducing costs and finding more efficiencies, including through use of data.
Industry leaders gave these views at Oil & Gas UK’s Oil and Gas Industry Conference, in Aberdeen today. While costs have been cut and a shift to a self-help view had been made, still more needs to be done, they say.
Norway’s Aker group CEO Øyvind Eriksen said a move to greater use of data could help bring some of the additional increase in efficiency the industry needs and that more sharing of data would help achieve this.
Amjad Bseisu, North Sea independent EnQuest’s CEO, said much had been done, from logistics to inventory rationalization and sharing, but also that there was more that could be done.
Offering a positive note, Scotland's First Minister Nicola Sturgeon - who is on the campaign trail as part of the UK’s general election, due on Thursday – said: “The North Sea will continue to produce for decades to come. Our primary aim is to maximize the economic recovery of those reserves (that remain).” Despite this, “the North Sea is undoubtedly a mature basin,” she added. “It is nearly 50 years since Amoco discovered Arbroath in UK waters,” and decommissioning is starting to take place – a new revenue stream she hopes Scotland can benefit from.
Opening the event, Deirdre Michie, Oil & Gas UK’s CEO, said that the industry had moved from hoping the oil price would help it out to knowing it has to help itself. Various projects have helped show the way, such as the subsea standardization project, led by the Efficiency Task Force, and which had led to Centrica moving forward to select phase on its Pegasus West field in the southern North Sea. The Oil & Gas Technology Centre was also now well established and issuing calls for innovative technology.
But, while Michie said that the changes made so far were sustainable – with up to two thirds of changes focusing on efficiency and better ways of working – the industry would need to remember what it has learned. She says an increase in field development approvals is expected this year, injecting new capital in to the basin, but that 2017-2018 would continue to be challenging.
Oil & Gas UK last week released its Vision 2035, setting out an aim to half the rate of production decline on the UK Continental Shelf and to double supply chain capacity. With a current 4% of global market share, Michie said this should not be difficult to double to 8%.
Sturgeon said lifting costs had already fallen from $30/bbl to just over $15/bbl over the last three years, showing the efforts operators had made. “That’s not been easy to achieve,” she said. “Many tough decisions had to be made.”
But Bseisu says more could be done. “We need to achieve efficiencies seen in the US and in other places,” he says. “We still have a path ahead of us. We are in a harsh and highly regulated environment (in the North Sea), so we do have a higher cost basin than others with lower costs, such as the Middle East and shale oil.” In shale, 65 b/d wells have been increased to 650 b/d wells and fracs to 5000ft have been extended to 1300-1500ft, he says. Proppant injection has increased from 600lb to 2000lb and costs are at $30-40/bbl. “We should take examples from what they (shale) have done, optimizing well completions and reducing well cost. Simplification, more efficient completions – instead of three wells, drill one.”
But he also says using more of the data that’s produced could help. Anecdotes suggest just 1% of North Sea production data is used, compared to 80% in shale, where it helps to make decisions remotely, he says. While things may have improved in the North Sea, it could still be a lot better.
Eriksen agrees. He says: “The industry has used the three-year down-turn wisely.” He said businesses had restructured and become more cost efficient. He cited the Johan Castberg project, which had seen its breakeven cost cut by half to US$43/bbl since 2014 through simplification and reuse of solutions, cyclical adjustments, and deflation in the supply chain. “Johan Castberg has been recognized as the new order.”
The biggest gains have been made where parties are aligned, he says. “I believe the future will be about customer alliances, long-term rather than project by project.” Decommissioning could also be tackled differently, he said. “Today the approach is fragmented and operator specific. The alternative is to make it a joint effort, either by operators working together to create a decommissioning campaign or alternatively create a vehicle (company or organization) set up for this task.”
But, he said: “We are at a tipping point. We believe it is possible to reduce the breakeven with 35% more from today’s level. We believe annual operating expense can be reduced by 2-5% a year, if we manage to change.”
A key focus area for Eriksen was data – and sharing more of it. “The rise of digital has been huge,” he says. “New digital tools have the potential to bring down cost per barrel. But even more could be done if we share data, create a common data lake,” such as around maintenance, modifications and operations and decommissioning. He said there may be a tradeoff, around who owns what data and what is valuable to individual companies, but that the benefits of sharing data could outweigh the down sides in many cases, “from benchmarking to re-use of equipment, and safer operations with greater regularity and more recovery.”
He suggests a data lake could be created on to which companies can then overlay their own applications, depending what they want to get from it. “Operators have data and we have data from our equipment, from different operators and from different fields,” he says. Putting at last some of that data into a common pool which could be used by different users – innovators, regulators, suppliers – could be of great value to the wider industry he says. In drilling, for example, it could help design more efficient wells.
“Suppliers already have a lot of data,” Eriksen says. “If they started sharing some basic data in one data lake you could avoid being too dependent on certain suppliers. This could make a new step change in efficiency.”
The idea has been proposed and is gaining some traction in Norway. A new, non-sector specific company, Digital Norway, has been set up, with Aker among the founder companies backing it with support from the Norwegian ministry of trade and industry and the Municipality of Oslo. Eriksen says, while the company will look at all sectors, he hopes the oil and gas industry will be the first pilot case.
But, he warns, such a scheme would struggle without regulator involvement, but given that government would have an interest in such a setup – both in terms of access to data but also from the tax gains (or less loss of tax gains when it comes to decommissioning relief) – as well as encouraging more efficient interaction between suppliers and operators and the regulator, it would be a win-win. “You wouldn’t have misinterpretation. Today, the reality is that systems are not connected well together and as efficiently as we believe.”
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